Meta Platforms, Inc. (META): Billionaire D.E. Shaw Is Bullish On This Stock Right Now

December 28, 2024

Neha Gupta

7 min read

We recently compiled a list of the 10 Best Stocks to Buy According to Billionaire D.E. Shaw.In this article, we are going to take a look at where Meta Platforms, Inc. (NASDAQ:META) stands against the other stocks.

Equity market pricing is never perfect due to supply and demand imbalances, emotional reactions, and errors. Billionaire investor David Elliot Shaw excels at detecting and exploiting these inefficiencies to generate shareholder value. Unlike most hedge fund managers who rely on intuition, Shaw uses sophisticated mathematical models and algorithms for investment decisions. Over the years, he has developed software and hardware to gain an edge in investment opportunities.

Born in 1951, David E. Shaw became a successful billionaire scientist and hedge fund manager. After earning a PhD from Stanford in 1980, he founded D.E. Shaw & Co. in 1988 with six employees and $28 million in capital. The hedge fund has averaged a 12.5% return since inception, with only one down year. Shaw’s firm uses powerful computers and advanced algorithms for quick market responses and risk management, returning over $51 billion to investors. Likewise, it generated a net return of 11.88% between 2001 and 2011. While Shaw’s firm was down by 9% at the height of the financial crisis in 2008, it bounced back to profitability with a 21% return in 2009.

D.E. Shaw is expanding and launching new funds. In 2023, they raised money for D.E. Shaw Alkali Fund VI, the newest in their Alkali group. By November 2024, they had secured $1 billion for this fund, focusing on corporate debt, structured credit, and synthetic securitizations.

Last year, the firm also raised $1.1 billion for two new private investment vehicles: D.E. Shaw Voltaic Fund and D.E. Shaw Diopter Fund. In June 2024, D.E. Shaw announced it was raising its second fund in 16 months to target bank capital deals. They filed a private placement notice for D.E. Shaw Diopter Fund II, but the amount wasn’t disclosed.

Bloomberg reported that D.E. Shaw’s largest hedge fund, the D.E. Shaw Composite Fund, gained 9.6% in 2023, outperforming the HFR Global Hedge Fund Index, which was up about 2.5% through December 15. Reuters added that D.E. Shaw’s macro-oriented fund, the Oculus Fund, gained 7.8% in 2023, beating its macroeconomic peers. According to Bloomberg, the Oculus Fund has never had a negative year since it started.

Diversification is another vital arsenal that D.E. Shaw & Co. relies on to spread risk and reduce market volatility. The firm is highly diversified with a portfolio value of about $116.49 billion. While technology stocks account for the most significant share in the equity market at 24.6%, the hedge fund also has stakes in Services at 17.5% and the financial sector at 7.7%. In addition to diversifying holdings, Shaw relies on a multi-strategy approach to squeeze optimum value in the market.

Billionaire D.E. Shaw suggests investing in resilient companies, even as the US Federal Reserve signals fewer interest rate cuts in 2025. Despite three cuts reducing the benchmark rate to 4.25%-4.5%, economic slowdown concerns persist, especially in the labor market. Job growth is mainly in government and health care, while growth in manufacturing, business, and professional services has stagnated.

Our Methodology

To make the list of best stocks to buy according to billionaire D.E. Shaw, we scanned D.E. Shaw & Co investment portfolio. We then settled on the hedge fund’s largest holdings analyzing why they stand out and the number of hedge funds that hold stakes in them. Finally, we ranked the stocks in ascending order based on D.E. Shaw & Co stake value.

At Insider Monkey, we are obsessed with the stocks that hedge funds pile into. The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).

A team of developers working in unison to create the company’s messaging application.

D.E. Shaw & Co’s Stake Value: $976.47 Million

Number of Hedge Fund Holders: 235

Meta Platforms, Inc. (NASDAQ:META) is a communications services company that provides applications that allow people to connect and share with friends and family. It is one of the best stocks to buy, according to billionaire D.E. Shaw, owing to its dominance in social media advertising. The company is increasingly investing in artificial intelligence as it looks to enhance user experience in its apps and engagement levels to attract more advertising campaigns.

Meta Platforms, Inc. (NASDAQ:META) is up by more than 73% in 2024, demonstrating strong financial performance over the year. Its outstanding 23% year-over-year revenue growth has outpaced the digital advertising industry. Likewise, the company boasts an exceptional gross margin of 81.5%, allowing it to generate more earnings and, therefore, higher shareholder value.

While the global digital advertising market is poised to exceed $1.15 trillion by 2030, Meta Platforms is making the most in the fast-growing sector. The company is investing more in artificial intelligence tools to drive returns for advertisers and, therefore, attract more dollars in ad campaigns.

Advertisers have seen an 8% increase in the quality of ads they can produce when they use Meta’s Andromeda machine learning (ML) tool. The social networking giant also notes that returns on investment have increased by 22% as a result of advertisers using its Advantage+ tool, which uses AI to help them target audiences. Because of this, Meta Platforms, Inc. (NASDAQ:META) has a good chance of continuing to grow faster than the digital ad market for a very long time.

Hardman Johnston Global Equity stated the following regarding Meta Platforms, Inc. (NASDAQ:META) in its Q3 2024 investor letter:

“During the quarter, we initiated one new position in Meta Platforms, Inc. (NASDAQ:META) and had no liquidations. Management at Meta has effectively addressed concerns about investment efficiency by shifting resources from Reality Labs towards broader AI initiatives with a clearer path to profitability. We believe management has successfully articulated the benefits of this strategy, highlighting how AI is driving user engagement and advertiser productivity. This, in turn, fuels continued revenue momentum and increases the likelihood of positive earnings surprises in the future. Additionally, the parent company of the social media platform, Facebook, has recently taken positive steps to enhance safety, which suggests to us a shift towards a more proactive and responsive approach to addressing important potential challenges and concerns. Weak oversight over data privacy protection was a key reason why we sold the position in the portfolio back in 2021. Removing this governance overhang allows us to feel comfortable to enter back into the stock at a time when we believe it is poised for strong earnings growth going forward.”

Overall META ranks 4th on our list of the best stocks to buy according to Billionaire D. E. Shaw. While we acknowledge the potential of META as an investment, our conviction lies in the belief that under the radar AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than META but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.

Disclosure: None. This article is originally published at Insider Monkey.

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